Uniswap is probably the most famous decentralized exchange or DEX. It is an exchange for trading cryptocurrencies, but with the difference that it’s not controlled by one single person or a centralized team. It is completely decentralized and governed by the users. In this article, we will go through Uniswap and cover everything about its functions and its native token called UNI. Stay with us.
What is Uniswap?
Uniswap is a famous decentralized exchange and a successful Defi project. It was one of the early projects that revealed the potential of Defi and its real-world use cases. Uniswap is based on Ethereum. It is used for exchanging ERC-20 tokens. In other words, Uniswap is a smart contract on Ethereum.
Uniswap is also called an Automated Market Maker or AMM. It is called Automated Market Maker because it doesn’t have an order book like traditional exchanges. Instead, it is coded in a way that determines the price of supported tokens based on supply and demand. This feature lets Uniswap work without needing intermediaries or a management team.
The high level of decentralization as well as being resistant against censorship are two main features of Uniswap. It is worth mentioning that for using Uniswap, like all other decentralized exchanges, you don’t need to sign up and pass KYC. The only thing you need to do is to connect a Web3 Ethereum wallet like MetaMask and start trading. Therefore, we can say that Uniswap also works in line with the ethics of user privacy.
How does Uniswap work?
In the previous part, we mentioned that Uniswap is an Automated Market Maker. To better understand this concept, lets compare it with centralized exchanges. Centralized exchanges usually have an order book. Buyers and sellers enter their orders in these exchanges’ order books. The exchange then connects users with reverse orders. This process needs a centralized intermediary like the exchange. But in Automated Market Makers like Uniswap, prices are determined through supply and demand. Imagine the demand for a token in an AMM goes up. In this situation, the price of this token also goes up. This tempts users who have that token to sell their tokens, and the price again comes down. This process constantly balances the price of cryptocurrencies in decentralized exchanges.
The liquidity of decentralized exchanges like Uniswap is also provided by the users. These users who provide the liquidity of the exchange are called Liquidity Providers (LPs). The important point about providing the liquidity of a DEX is that you cannot provide the liquidity of only one token. You have to select a trading pair and provide the liquidity of both tokens. When other users trade these tokens, liquidity providers earn a share of fees.
Now imagine you want to trade a token that is not available in Uniswap. In this situation, you can create the trading pair yourself. This is also another interesting feature of Uniswap. Users can create a pool and then start using it.
In brief, Uniswap is completely decentralized, and is coded in a way that can do all processes without needing to rely on intermediaries. It is also open-source and all users can access its source code in GitHub.
Who created Uniswap? The history of Uniswap
Uniswap was founded by one of the developers of Ethereum called Hayden Adams. The Ethereum Foundation provided him with a 100-thousand-dollar fund to develop a decentralized exchange. Uniswap started its mission with a team consisting of less than 10 members. It officially started its work in November 2018. In less than 2 years, Uniswap attracted huge attention and established its position as a successful Defi project.
The UNI token and the Uniswap DAO
Uniswap has a native token called UNI. It is a governance token, meaning that UNI holders can both make a proposal and vote for the proposals. Imagine you have a proposal for improving Uniswap. You must have the UNI token to submit your proposal. After you submit the proposal, other UNI holders can vote for it. Your proposal must go through 3 phases for getting adopted. At the first phase, it must get 25,000 yes-votes, at the second phase it must get 50,000 yes-votes, and at the third phase it must get 40 million yes-votes.
Bedside being a governance token, UNI can also be considered a store of value. At the time of writing, each unit of UNI is being traded at $7.11. It is the seventeenth-largest cryptocurrency by market cap. UNI’s all-time high goes back to May 2021 when its price exceeded 45 dollars.
UNI is an ERC-20 token. So, it’s obvious that you can use all Ethereum wallets for storing it. Some of the best Ethereum wallets you can use for storing UNI include:
- Ledger Nano S
- Atomic Wallet
- Guarda Wallet
In this article, we went through one of the most popular decentralized exchanges called Uniswap. Uniswap with its unicorn logo is familiar to all cryptocurrency fans. If you are a crypto enthusiast, if you prefer to do everything in a decentralized manner, or if you don’t want to pass KYC for exchanging cryptocurrencies, then Uniswap is an appropriate choice for you.
When it comes to crypto exchanges in Dubai, there are several platforms available for users to buy, sell, and trade cryptocurrencies. One notable exchange is Cryptodesk, which provides a reliable and secure platform for crypto enthusiasts in the region.